By Jean-Pierre A.
Kenya has overtaken Ethiopia as Eastern Africa’s largest economy measured by nominal gross domestic product (GDP) in US dollar terms, the International Monetary Fund’s (IMF) October 2026 World Economic Outlook (WEO) show, a shift largely attributed to exchange-rate movements rather than faster real economic growth.
The IMF’s estimates show Ethiopia’s economy continuing to expand more rapidly in real terms, even as the depreciation of the birr ( Ethiopia’s currency) reduced the dollar value of its output. Kenya’s comparatively stronger currency performance, alongside continued economic growth, helped increase the value of its economy when measured in US dollars.
According to the IMF’s October 2026 WEO, Kenya’s GDP at current prices is projected to reach $151.15 billion, up from $147.26 billion in the April edition.
The IMF’s October 2026 WEO estimates, Ethiopia’s real GDP grew by 9.2 percent in 2025, compared with 4.6 percent in Kenya. The Fund projects Ethiopia’s economy to expand by 9.2 percent in 2026 and 7.8 percent in 2027, while Kenya’s growth is projected at 4.5 percent and 4.7 percent, respectively.
The figures underscore the distinction between nominal GDP, which values economic output at prevailing market exchange rates, and real GDP growth, which measures changes in output after accounting for price changes. A country’s dollar-denominated GDP can decline sharply following currency depreciation even when its domestic production is increasing.
Ethiopia’s currency shift followed the government’s July 2024 move toward a more market-determined exchange-rate system, a key component of its economic reform programme supported by an approximately US$3.4 billion IMF Extended Credit Facility. The subsequent depreciation of the birr substantially reduced the dollar value of the country’s economic output.
Kenya’s economy, meanwhile, benefited from a stronger shilling, which increased the dollar valuation of its output. The IMF estimates indicate that Kenya’s nominal GDP in US dollar terms increased by about 13.7 percent in 2025, while Ethiopia’s dollar-denominated GDP fell sharply from its 2024 level.
The change in ranking reflects the combined effects of economic growth, inflation and exchange-rate movements on the dollar value of each economy.
However, the latest projections also highlight the challenges facing Kenya’s economy, with public debt estimated at 72.9 per cent of GDP and the government’s fiscal deficit projected at 6.6 per cent of GDP in 2026.
The Fund projects economic growth to improve to 4.7 per cent in 2027, suggesting a modest acceleration in economic activity next year.